Graduate School of Development Studies

A Research Paper presented by:

Rika(Indonesia)

in partial fulfillment of the requirements for obtaining the degree of

MASTERS OF ARTS IN DEVELOPMENT STUDIES

Specialization:International Political Economy and Development

(IPED)

Members of the examining committee:

Karim Knio [Supervisor]Karel Jansen [Reader]

The Hague, The NetherlandsNovember, 2010

Change or Continuity? Rethinking Neoliberal Trajectory amidst Regime Change in Indonesia

Disclaimer:This document represents part of the author’s study pro-gramme while at the Institute of Social Studies. The views stated therein are those of the author and not necessarily those of the Institute.

Inquiries:Postal address: Institute of Social Studies

P.O. Box 297762502 LT The HagueThe Netherlands

Location: Kortenaerkade 122518 AX The HagueThe Netherlands

Telephone: +31 70 426 0460Fax: +31 70 426 0799

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Contents

List of Tables ivList of Acronyms vAbstract vi

Chapter 1 Introduction 11.1 Indication of the Topic and Working Title 11.2 Indication of Research Problem 11.3 Formulation of The Research Objective, Research

Question, and Research Hypothesis 31.3.1 Research Objective 31.3.2 Research Questions 31.3.3 Research Hypothesis 3

1.4 Organisation of the Paper 4

Chapter 2 Theoretical and Methodological Frame-work 52.1 From Washington Consensus to Post-Washington

Consensus: a Change and/or Continuity? 52.2 What is Neoliberalism ? 92.3 Methodology and Methods 13

Chapter 3 The Neoliberal Trajectory in Indonesia143.1 The Historical Overview of Indonesia’s Political

Economy: A Market Oligarchy State 143.2 Berkeley Mafia and the Rise and Fall of Technoc-

racy 163.3 The Asian Crisis, Indonesia, and the IMF 20

Chapter 4 The Change and the Continuity of In-donesia Neoliberalism 234.1 The Change Argument 234.2 The Continuity Argument 27

Chapter 5 Analysing the Debate of Neoliberal Tra-jectory amidst the Regime Change 31

Chapter 6 Conclusion: To the Dialectical of Change and Continuity 36

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References 38

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List of TablesTable 1 The Augmented Washington Consensus 7

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List of Acronyms

ADB Asian Development BankBAPPENASBadan Perencanaan Pembangunan Nasional

(State Planning and Development Agency) DPR Dewan Perwakilan Rakyat (People’s Represent-

ative)FEUI Fakultas Ekonomi Universitas Indonesia (Fac-

ulty of Economy University of IndonesiaFDI Foreign Direct InvestmentGDP Gross Domestic ProductIGGI Intergovernmental Group on IndonesiaIMF International Monetary FundITB Institut Teknologi Bandung (Bandung Institute

of Technology)LOI Letter of IntentMOF Ministry of FinanceMIT Massachusetts Institute of TechnologyMenko Menteri Koordinator Perekonomian (Coordinat-

ing Minister for Economy, Trade, and Industry)NIC Newly Industrializing CountriesNGO Non Government OrganizationPKI Partai Komunis Indonesia (Indonesia Commun-

ist Party)PLN Perusahaan Listrik Negara (State Electricity En-

terprise)PWC Post Washington ConsensusSAP Structural Adjustment ProgramSBY Susilo Bambang YudhoyonoSeskoad Sekolah Staf Komando Angkatan Darat (Staff

and Command School of the Army)UI University of IndonesiaWC Washington ConsensusWTO World Trade Organization

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Abstract

After the Asian crisis and the unfavourable IMF loans to Asia, neoliberalism has faced mounting opposition in In-donesia, for it is considered a political agenda and ideology from outside. Simultaneously, the newly democratic govern-ment under President Susilo Bambang Yudhoyono is la-belled a neoliberal government for the neoliberal techno-crats he has appointed and some neoliberal policies he has made. In contrast, it could also be argued that the legacy of Soeharto‘s authoritarian regime has confined the exogen-ous pressure of neoliberal reform.

This research will depict and challenge those particular readings of neoliberalism. In particular, the paper examines the change and continuity of neoliberal trajectory amidst the regime change; by examining the power structure of the actors, their policies, and historical events in Indonesia’s political economy. Tracing back the neoliberalization from the beginning of Soeharto’s authoritarian regime to Yud-hoyono’s democratic regime, this research finds that the neoliberal trajectory in Indonesia is the dialectical process between change and continuity.

Relevance to Development StudiesThis paper contributes to enhance the understanding of neoliberalism. The conceptual framework that focuses on the discussion over change and continuity broadens the popular narrow notion of neoliberal as merely Washington Consensus and post-Washington Consensus. Besides, by ad-dressing a country’s experience, it reveals that neoliberal-ism is not a static concept and political agenda from out-side, but a contested process that abounds with local ten-sions and dynamics.

KeywordsAuthoritarian, Democracy, Neoliberalism, Neoliberal, post-Washington Consensus, Washington Consensus, Indonesia, Soeharto, Susilo Bambang Yudhoyono, Berkeley Mafia

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Chapter 1Introduction

1.1 Indication of the Topic and Working TitleChange or Continuity? Rethinking Neoliberal Trajectory amidst Regime Change in Indonesia

1.2 Indication of Research ProblemThe discourse of neoliberalism, which was rarely mentioned in Soeharto’s authoritarian regime, has mounted to become a prominent and controversial issue in Indonesia demo-cratic regime. The term has been significantly used to label President Susilo Bambang Yudhoyono’s (SBY) administra-tion since his first term (2004-2009) and continued into his second term (2009-today).

Furthermore, the discourse constructs neoliberal as the antithesis of people based economy, which is a historic eco-nomic ideology of the country. This contradiction became major media’s headline and public debate during the 2009 election when all three president candidates - including SBY as the incumbent - rejected the neoliberal label and in-sisted their economic visions are completely pro people1.

The dominant discourse which has nuanced national me-dia coverage in Indonesia portrays neoliberalism as a villain who accommodates foreign interests to exploit the coun-try’s economy. The anti-neoliberalists, of which some are economic nationalist and NGOs, while the others are polit-ical opponents, emphasizes how much neoliberal ideology have influenced the country. In particular, they pinpointed the strategic ministers in SBY’s cabinet who are related to the Berkeley Mafia, a so called group of western-trained 1 Pro people economy or people based economy is based on brotherhood principle with the core principles written in 1945 Constitution as follows: (1) The economy shall be organized as a common endeavour based upon the principles of the family sys-tem. (2) Sectors of production which are important for the coun-try and affect the life of the people shall be under the powers of the State. (3) The land, the waters and the natural resources within shall be under the powers of the State and shall be used to the greatest benefit of the people. (4) The organisation of the na-tional economy shall be conducted on the basis of economic democracy

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technocrats which was established in Soeharto’s era. These bureaucrats, such as the Finance Minister and the Trade Minister, were said to make policies that focus on macroe-conomic stability, based on free market ideology and give favor to foreign investors.

Former Minister of National Development Planning, Kwik Kian Gie (2009), said that the Berkeley Mafia has been confining Indonesia’s economy. He pointed out some policies, such as privatization of state enterprises, liberaliz-ation of public goods and services productions, growing ac-cumulation of foreign debt, and market mechanism in oil prices which uses the New York Mercantile Exchange price as its benchmark. He also called the Berkeley Mafia an or-ganization without form2 who affiliates with the foreign power represented by the International Monetary Fund (IMF), the World Bank, and various multinational corpora-tions. This relation, according to Kwik, has been started since Soeharto’s era after he took over the administration from Soekarno. At this point, the preceded socialist and aut-arkical government shifted to a new regime which is more open to capital and foreign investment. Kwik argued that it was related to the dominance of Berkeley Mafia and Wash-ington-backed conspiracy and was first indicated on the Geneva Conference in 1967– a first conference to offer for-eign enterprises to invest in Indonesia3.

Within argument, it is assumed that the very root of neo-liberalism ideology in Indonesia came from the moment when Suharto invited the Berkeley Mafia to restore the damaged economy. Having occupied important posts of eco-nomic authorities like the Ministry of Finance, Trade, the National Planning Board (BAPPENAS), and the Central Bank, the neoliberal technocrats favored deregulation measures as well as outward-oriented development policies.

However, the neoliberal trajectory in Indonesia is much complicated than the dominance of one social group who have been influenced by external pressure over economic policies. As Indonesia moved to developmental state later on, the neoliberal technocrats had to compete with the eco-

2 Ford Foundation funded the economists to study economic sci-ences abroad around the 1950s to ’60s, mostly in the United States. Some of the prominent figures obtained PhDs from the University of California at Berkeley (Amir, 2008:3). 3 As stated by Pilger (2002), the conference titled ‘To Aid in the Rebuilding of a Nation’ sponsored by Time-Life Corporation to design a corporate take-over in Indonesia. The major corporate giants, from oil companies to banks, met with Indonesia’s eco-nomic team which later known as the Berkeley Mafia..

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nomic nationalists/bureaucrats. The latter included the mil-itary and non-military bureaucrats, who were often in the head of the state-owned enterprises and that of ministries of productive sectors, such as industry. They preferred rapid state-led development, usually involving very large capital investments without much prospect of short -or even medium-term return (Liddle, 1991:416-417). During the whole Soeharto’s period, it was a seesawing policy making process between both groups, managed by Soeharto to serve his interest or his cronies’ interests. The neoliberal policies

However, the hybrid of developmental state and neolib-eral ideology which intertwined each other came into crisis along with the Asian crisis in 1998. Capital account liberal-ization and neoliberal-inspired policies led to massive cap-ital outflow and pushed Indonesia’s economy into chaos. The developmentalist state was forced to an end at the time Indonesia agreed on the IMF’s stabilization policy as well as the fall of Soeharto and the New Order regime. The institu-tional reform led to the dawn of a democratic regime in In-donesia which is assumed to drown deeper into neoliberal-ism.

However, there is also a challenge to neoliberalism in SBY’s democratic regime. The politico-business legacy of Soeharto’s regime has not been diminished. Beside the neo-liberal technocrats, many of the government actors are the party politicians who have a dual interest as businessmen. The examples of this group are Vice President Jusuf Kalla, a party politician and pure non-Javanese businessmen, as well as the Minister of People Welfare Aburizal Bakrie, Kalla’s colleague who is also one of the richest businessmen in In-donesia.

Thus, the policy making process in SBY’s governance is a negotiation game between the technocrats and the politi-cians. SBY himself has to be very careful to balance the in-terests to accommodate each political party to secure his administration.

1.3 Formulation of The Research Objective, Research Question, and Research Hypothesis

1.3.1 Research ObjectiveThis research paper aims to examine the neoliberalization process in Indonesia that has been transforming amidst the institutional change of the regime under President Soeharto

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to President Susilo Bambang Yudhoyono. In particular, this paper will explore the different readings of neoliberalism in the country. They incorporate change and continuity of a neoliberalism trajectory during the shifting of authoritarian regime to democratic regime, through the dynamic change and interaction within the neoliberal technocrats and the other groups in the government.

1.3.2 Research QuestionsHow should we conceptualize the neoliberal trajectory in Indonesia, to the extent of change and continuity, amidst the shifting regime from Soeharto to Susilo Bambang Yud-hoyono,?

Subquestions:1. Is it the process of change or a continuity of neoliber-

alism, or both? What are the arguments behind each reading?

2. If it is a change, how different is the neoliberalism process between the democratic regime and authorit-arian regime? If it is continuity, what are the similarit-ies of the pattern?

3. What is the role of the Berkeley Mafia in the neolib-eral trajectory from authoritarian to democratic re-gime?

1.3.3 Research HypothesisThe change of the regime, from authoritarianism to demo-cracy, also changes the process of neoliberalism, but at the same time it is also the continuity of it. Whilst Indonesia has undergone neoliberal reform as enforced by the IMF after the Asian crisis, some legacy of the authoritarian reform has been preserved. In other words, the democratic regime nowadays is not really a new regime but still contains the values and the actors of the old time. It makes the trans-formation of Indonesia into a liberal market economy rather ambiguous and vague. Aside from that, the unfavourable crisis experience with the IMF has sparked the anti-IMF and anti-neoliberal stances. Altogether, it would seem that these arguments can be used to explain why Indonesia has not turned out to be an extreme neoliberal country post-IMF.

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1.4 Organisation of the Paper This paper starts with theoretical and methodological framework4 in chapter 2. Here, it clarifies the theoretical underpinning of neoliberalism, focusing on neoliberal con-cepts mainly from Andrew Gamble, David Harvey, Stephen Gill, and Richard Robison. Besides, it also examines the change and/or continuity within the transformation of Washington Consensus to post-Washington Consensus.

The following chapter, Chapter 3, explains the historical overview of Indonesia’s political economy, focusing on the shaping of a market oligarchy state. Then, it continues to discuss the actors involved in the neoliberal process, which are Soeharto, the Berkeley Mafia, and the economic nation-alists. It explains their role in economic policy making until Indonesia was hit by the Asian crisis and committed to re-form under the IMF.

Chapter 4 unfolds the two perspectives in viewing neo-liberal trajectory from an autocratic government to a demo-cratic one. Subsequently, the elaboration and debate of change and continuity arguments are the content of Chapter 5. Here resides my critical analysis on both argu-ments. This research paper will end by concluding in Chapter 6, proposing the argument that neoliberal traject-ory from authoritarian to democracy is the dialectical of change and continuity, the marrying of exogenous and en-dogenous factors in Indonesia’s political economy.

4 The methodology and methods of the research will be explained further in chapter 2.

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Chapter 2Theoretical and Methodological Framework

This chapter lays down the foundation of theories and methodology to conduct the research. The theoretical framework underpins the tension within neoliberalism’s definition, as well as its interpretation and evolution. Mean-while, how the theory will be linked to other parts of this re-search is explained within the methodology and methods section.

2.1 From Washington Consensus to Post-Washington Consensus: a Change and/or Continuity?Traditionally, the popular discourse of neoliberalism often refers to a liberal economic policy agenda widely known as the Washington Consensus. First coined by John Williamson (1990), WC is basically a set of policy instruments to re-spond to a crisis, initially the debt crises in the 1980s, which was propagated by Washington.

Williamson (1990) refers to Washington as the political Washington of the U.S. Congress and senior members of the administration, the technocratic Washington of the in-ternational financial institutions, the economic agencies of the U.S government, the Federal Reserve Board, and the think tanks. The neoliberal policies are the consensus among these groups and were offered as a crisis remedy to-gether with the IMF loan.

In addition, Williamson (1990) states Washington’s mo-tivation to give support to its Latin neighbours (and, for that matter, to other countries) besides furthering their economic well-being, is concerning the strategic and com-mercial interests of Washington. The promotion of demo-cracy and human rights, suppression of the drug trade, pre-servation of the environment, and control of population growth play a minute role in determining Washington's atti-tude toward the economic policies it urges towards Latin America.

Despite this, the phrase itself is problematic. Williamson initially aimed to emphasize the technical, externally ori-ented, macroeconomic aspects of the counter revolution in

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development economics (Grugel et al. 2008:500). It consists of 10 specific structural policies (Williamson 1990, 1993):

1. Fiscal discipline2. Public expenditure prioritised to areas that come

with high economic returns3. Tax reform4. Interest rate liberalization5. Competitive exchange rate6. Trade liberalization7. Promotion of Foreign Direct Investment8. Privatisation of State Owned Enterprises9. Deregulation10. Provision of secure property rights

In fact, it went further beyond this. Privatization, liberal-ization, and an attack on corporatism, labour organization and welfare regimes inevitably constituted a radical change in the basis of domestic legitimacy and the state-society re-lationship. For many, the phrase also has strong political connotations with the imposition by a powerful constella-tion of forces in Washington (Grugel et al. 2008:501).

The newly orthodox policies spread worldwide and neo-liberal thinking exercised on adjusted the policy discourse of key Bretton Woods institutions such as the IMF and World Bank. However, by the beginning of 1990s, the Washington Consensus was under a serious challenge. First, a critic to the fundamental claim of the Washington Consensus that full-scale liberalization at all costs is associ-ated with superior economics. The truth is, Newly Industri-alizing Countries (NIC) in East Asia who had deviated from neoliberal reform had high economic growth with striking employment expansion, poverty reduction and income dis-tribution, while many countries under it such as Latin America countries, the Sub-Saharan Africa have lagged far behind, and even some ended in failure such as Argentina (Onis and Senses 2005). Other than that, critics raised the issue of the persistence of world poverty and the social cost of the Washington Consensus.

Under the Structural Adjustment Program (SAP), a num-ber of middle income countries have been encouraged or pressured by the IFI to open up their capital account caus-ing premature financial and capital account liberalization. Together with an under-regulated financial system, they provided highly volatile capital flows and frequent financial crises. Those criticisms do not come only from academics and practitioners, but also from global civil society through

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global non-governmental organizations and local level res-istance (Ibid.).

But it is the high cost of the IMF’s programs during the Asian crisis that triggered huge critiques and a serious ex-ternal pressure for change ever since. For the first time, the IMF faced heavy criticism not only from the periphery, but also the center. Explaining the latter, Grugel (2008) argues it was a new-found interest in regulation and the state, arising from two overlapping sources in Washington. One was an ambitious agenda for market access, focused on in-vestment flows and financial services activities. The other was an increasing need to relegitimate the neoliberal agenda to address the critique of its social cost.

These amalgamated into the so-called post-Washington Consensus. Simply said, it is an institutional reform that brings in broader structures of transparency and account-ability that was thought would promote a more stable mac-roeconomic environment, greater predictability in policy making and, hence, a more secure investment environment. It rolled back the state though only in regards to some tasks such as neutral regulatory activity, while calling the IFI for a broader agenda which was to reconcile open market policies with a commitment to democratic politics and poverty reduction.

In the following table 1, Rodrik (2006) shows how much the Washington Consensus has been augmented:

Table 1The Augmented Washington Consensus

Original Washington Con-sensus

“Augmented” Washington Con-sensusthe previous 10 items plus

1. Fiscal discipline 11. Corporate governance2. Reorientation of public ex-penditures

12. Anti-corruption

3. Tax reform 13. Flexible labor markets4. Financial liberalization 14. WTO agreements5. Unified and competitive ex-change rate

15. Financial codes and stand-ards

6. Trade liberalization 16. “Prudent” capital account7. Openness to FDI 17. Non-intermediate ex-

change8. Privatization 18. Independent central bank9. Deregulation 19. Social safety nets

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10. Secure property rights 20. Targeted poverty reductionSource: Rodrik (2006)

Williamson (2000) himself was also involved in the post-Washington Consensus debate. He agreed it is a continuity of the Washington Consensus, although prior to it he clari-fied the original meaning of Washington Consensus as he meant when it was first coined. According to Williamson, the term Washington Consensus has been misused and mis-understood to describe an extreme belief of neoliberalism that the market can handle everything. This market funda-mentalism is far from what he originally intended, he said:

How is that a term intended to describe a technocratic policy agenda that survived the demise of Reaganomics came to be used to describe an ideology embracing the extreme version of Reaganomics. The closest I can come to understanding this is to note that my version of the Washington Consensus did indeed focus principally on policy reforms that reduced the role of government. I did this because the orthodoxy of the generation whose ideas were embodied in the practices being challenged in 1989 had been more statist than was by then regarded as advisable, and hence the policy reforms that were needed at that time were all in the direction of liberaliz-ation (Williamson 2000:255).He defends 9 out of 10 reforms in the Washington Con-

sensus as intended pro poor policies as in the newer Post-Washington Consensus. The only thing he admitted as a flaw is the financial and interest rate liberalization in that it neglected financial supervision to prevent improper lending and eventually crises. Thus, he agrees that transparency and financial institution supervision are essential and also considers including policies focused in improved environ-mental conditions. However, he prefers institutional reform as the focus.

The implied continuity argument here is that the Wash-ington Consensus is not dead with the presence of the post-Washington Consensus. Furthermore, he suggested going beyond the Washington Consensus by emphasizing the im-portance of the original version of it – policies that will pro-mote an equitable distribution of income as well as a rapid growth of income (Williamson 2000:262).

In addition to that, Fine (2001) mentions that although the new policy has a wider scope and is less dogmatic than the old one, its intellectual narrowness and reductionism remains striking, for it replaces an understanding of the economy as relying harmoniously on the market for an un-

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derstanding of society as a whole, based on (informational) market imperfection.

However, one can argue that the post-Washington Con-sensus presents the new things which have never been pro-moted by the Washington Consensus, in other words: a change. This was emphasized by Stiglitz (1998), saying that the policies advanced by the Washington Consensus are hardly complete and are sometimes misguided. He argues that making markets work requires more than just low in-flation; it requires sound financial regulation, competition policy, and policies to facilitate the transfer of technology and to encourage transparency, to cite some fundamental issues neglected by the Washington consensus.

He suggests that macroeconomic policy needs to be ex-panded beyond a single-minded focus on inflation and budget deficits. Macroeconomic stability and long-term de-velopment require sound financial markets. Nevertheless, the agenda for creating sound financial markets should not confuse means with ends; redesigning the regulatory sys-tem, not financial liberalization, should be the issue. He ex-plains this as post-Washington Consensus, an institutional reform that also considers developing countries’ interests and is no longer made in Washington.

Even though Stiglitz emphasizes the new consensus is different from the old one since the new one addresses mar-ket imperfections and brings in the state as a complement to markets, the thick orthodoxy remains. In this case, Onis and Senses (2005) argue that the post-Washington Con-sensus is a new approach but still has its limitation. They explain the new approach as a synthesis of two previously dominant paradigms in development theory and policy, namely national developmentalism with its emphasis on the critical role of the state in overcoming market failures, and neoliberalism with its unquestioning belief in the free mar-ket. In other words, it admits the importance of the state in the context of open market, but at the same time, it also re-cognizes state failure. To avoid this, it requires institutional innovation and democratic governance. Therefore, accord-ing to Onis and Senses (2005:286), PWC represents a more progressive approach to development as compared with the naïve and unqualified application of the Washington Con-sensus.

Furthermore, they mention the limitations within PWC. A central criticism is that it adopts a rather narrow and technocratic approach toward state-market interactions at both national and global levels. Because it takes the exist-ing power structure as predetermined, it fails to address

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the asymmetrical power between classes at the level of na-tion states, and powerful versus less powerful states in the global economy. Secondly, while the PWC stresses the im-portance of transparent and accountable institutions to im-prove economic performance, the focus is more the do-mestic level or the nation state. The transparency and democratic accountability of the IMF, World Bank, and the WTO as well as problems arising from their domination by developed country interests, receive only cursory attention from the intellectual proponents of PWC and from the insti-tution themselves (Onis and Senses, 2005:285-286).

More criticism on the shifting of WC to PWC comes from Dani Rodrik. Rodrik (2002) sees PWC as the newly refur-bished Washington Consensus that is not a helpful guide to promoting development in poor countries. Rodrik explains it bluntly:

The Augmented Washington Consensus is bound to disap-point, just as its predecessor did. There are many things wrong with it. It is an impossibly broad, undifferentiated agenda of institutional reform. It is too insensitive to local context and needs. It does not correspond to the empirical re-ality of how development really takes place. It describes what “advanced” economies look like, rather than proscribing a practical, feasible path of getting thereOne of the things he points out is the institutional funda-

mentalism of PWC that in practice cannot be acquired without significant domestic adaptations. According to Rodrik, what the world needs right now is less consensus and more experimentation. Hence, they need to provide an alternative set of policy guidelines for promoting develop-ment, without falling into the trap of having to promote yet another impractical blueprint that is supposed to be right for all countries (Rodrik 2002:1).

From the previous explanations about change, continu-ity, and evolution of WC to PWC, it is clear that neoliberal-ism is broader than a policy agenda. To dig deeper into that subject, the next chapter will observe the theoretical under-pinnings of neoliberalism.

2.2 What is Neoliberalism ?To answer the question in the subtitle above, we can start by quoting Gamble (2006); that one cannot mention pre-cisely a single theory about neoliberalism which is valid in all circumstances as neoliberalism has been interpreted in many different ways since it emerged, hydra-headed, in the 1970s.

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What the history of neoliberalism shows is that like other ideologies, there is no pure form of it, and no single authorit-ative statement, and within its compass there can be found both highly subtle and extraordinarily crude versions. There are also a number of different political forms which it can take, a variety of hybrids and compounds (Gamble 2006:34).Yet, Gamble (2006) stated that there have been at least

two main strands of neoliberalism, echoing the dominant strands of classical liberalism in the nineteenth century. First, the laissez faire strand which believes that the best policy is to allow markets to operate with as few impedi-ments as possible. The other is the social market strand which believes that for the free market to reach its full po-tential the state has to be active in creating and sustaining the institutions which make that possible. Nevertheless, there do remain some core ideas by which all strands of neoliberalism are recognizable, and one of these is the rela-tionship of the state to the market. The market has primacy, but all neoliberals recognize that market order requires a particular kind of state to secure it. (Gamble 2006: 22).

However, even though globalized capitalism has become the regime of accumulation in the world, the pure laissez faire strand has become nearly extinct at present. The second strand that involves the state in the institutionalised power of market and capital bears a resemblance more to practices in the real world. The core question is what kind of state intervention favors neoliberalism? To answer and to explain this evolving change I will use the neoliberal criti-cisms by Harvey.

Harvey (2005) said that neoliberalism is in the first in-stance a theory of political economic practices that pro-poses that human well-being can be best advanced by liber-ating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade. The role of the state is to create and preserve an institutional frame-work appropriate to such practices. Furthermore, if mar-kets do not exist (in areas such as land, water, education, healthcare, social security, or environmental pollution), then they should be created by state action, if necessary. Once created, state interventions in markets must be kept to a bare minimum because, according to the theory, the state cannot possibly possess enough information to second guess market signals or prices and because powerful in-terest groups will inevitably distort and bias state interven-tions (particularly in democracy) for their own benefits.

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More than the classification above, for Harvey, neoliber-alism has become hegemonic as a mode of discourse. It has pervasive effects on ways of thought to the point where it has become incorporated into the ordinary way many of us interpret, live in, and understand the world. Deregulation, privatization, and withdrawal of the state from many areas of social provision have been all too common. Almost all states have embraced, sometimes voluntarily and in other instances in response to coercive pressures, some version of neoliberal theory and adjusted at least some policies and practices accordingly. We can see almost everywhere that the advocates of the neoliberal way now occupy positions of considerable influence in education, the media, corporate boardrooms, financial institutions, key state institutions, and also in those international institutions, such as the IMF, the World Bank, and the WTO that regulate global finance and trade (Harvey 2005:3).

Nevertheless, to narrow back this broader definition, we must distinguish between neoliberalism as a system of thought and actually existing neoliberalism. While the first can be traced back to the ideas developed in the writings of Frederich Hayek during the Second World War and their popularization in the 1970s as the counter-argument of Keynesian ideas by Milton Friedman, the latter is a more practical vision centered on a program of macroeconomic stabilization, deregulation, liberalization of trade, and privatization of economy. Neoliberalism in practice means the Washington Consensus as a practical development strategy whose advocates can, with some justification, dis-tance themselves from the particular neoliberal theories de-veloped by the so-called Austrian school (Munck 2005:61).

The two simplified but complexly intertwined definitions of neoliberalism which are almost similar with the above definition is stated by Robison (2005). First, it is defined by neo-classical economic ideas about the nature of markets and economic growth. Second, it may also be characterised and distinguished in terms of its political ideas, projects, and agendas. In other words, the first portrays neoliberal-ism as an ideology, a neo-classical critic to Keynesian, while the latter illustrates neoliberalism as a political economy practice.

Although differing in practice in every country since it evolved and became tailor-made based on the country’s dy-namics, the neoliberal project has some core elements that can be identified in a range of economic, social, and related political policies that emphasize the market, fiscal discip-line, trade, investment and financial liberalisation, deregu-

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lation, decentralization, privatisation, and reduced role for the state (World Bank 1983; Williamson 1990; Wade 1992).

To make it clearer, we have to recall history. When it first appeared as an intellectual doctrine, neoliberalism at-tracted wider attention as it criticized Keynesianism in the Anglo-American world as inflation started to rise in the late 1960’s. The leading attack in this case came from Milton Friedman’s monetarism and triggered wider critique of state involvement in the economy by the Austrian School, particularly by Friedrich Hayek and Ludwig von Mises (Gamble 2006). This libertarian critique had not been taken into real consideration until the first oil shock of 1973-1974 happened; the combination of high inflation and high unem-ployment in the major capitalist states brought structural crisis to the world capitalist economy. As the U.S scrapped the convertibility of the dollar to gold and introducing float-ing exchange rates, the Bretton Woods Agreement finally collapsed. The indelible rules of Keynisianism started to be questioned and then were lost to the ascendance of neolib-eralism.

The floating currency represented a new tool in the U.S.’s hand; a first component of what became, in the fol-lowing years, the neoliberal framework. Liberalisation of capital flows was soon added in 1974 after its limitation in the 1960s. In 1979, Monetarism was officially translated into policy, when the Federal Reserve under Paul Volcker decided to suddenly and controversially increase interest rates to curb inflation (Dumenil and Levy 2005). These lib-eral policy trends continued under President Reagan, whereas The United Kingdom joined the movement in 1979. Together, Reagan and UK’s Prime Minister Margaret Thatcher were widely known to bring in the radical market fundamentalism side of neoliberalism into policies that later became well-known as Thatcherism and Reaganism. The years since have seen an expanding application of neolib-eral policy ideas within the economies of both industrialized and developing countries (Palley 2005:21).

Beyond the definition of neoliberalism as a policy pro-ject, neoliberalism defines a specific power configuration; it continued the long term trends in the transformation of capitalism. The dramatic rise of financial institutions and the parallel centralisation of capital since the late nine-teenth century have reached new heights since the 1980s.

The soul of market and, more specifically, capital are what Gill (2000) calls disciplinary neoliberalism that has subsequently proliferated in the world. He simply illustrates this situation as a world in which the actions of govern-

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ments, as well as firms and workers, are internally and ex-ternally disciplined by market forces, or, put differently, by the power of capital. After the 1970s up to the present; the growth in the power capital world-wide has involved not only the growing strength and positional power of neolib-eral ideas and ideologies, but also their application in the practices of key social institutions (e.g. state, market, edu-cation, international organisation). More importantly, it is intimately related to the re-configuration of power rela-tions, a re-distribution of wealth and the intensification of new patterns of social and economic inequality.

How does the power of capital utilize its hegemony? Gill explains, it is both direct and indirect through market-based structure. The examples of the former are the cap-ital’s superior bargaining power over labour, or relative to states which bid for investment against one another, whereas the latter is reflected on how neoliberal discipline is exercised on firms, their workers, or on governments in the financial world, e.g. stock and bond markets.

Moreover, public policy has been redefined in such a way that governments seek to prove their credibility, and of the consistency of their policies according to the degree to which they inspire the confidence of investors. In this way, new political and constitutional initiatives in the sphere of money and finance are linked to the imposition of macro-economic and microeconomic discipline in ways that are in-tended to underpin the power of capital in the state and civil society (Gill 2000:4).

Indeed it includes the constitutional “mechanisms of re-straint” to lock in not only macroeconomic but also microe-conomic policy in ways that involve a clear separation of the economic and political to lessen the possibility for demo-cratic accountability (Ibid.16). This could be the state’s in-ternal constitution that has been locked in market discipline to gain investor confidence to best compete in globalized liberalization. The state can do it under consent and in its own way which is adjustable to the country’s dynamics, but it is also possible to do it under a little coercion, such as what the South East Asian countries have been pushed to accept under the Structural Adjustment Program by the IMF during the Asian crises.

Nevertheless, behind disciplinary neoliberalism there are social forces that underpin it. According to Gill, this market trend is partly driven by the growth of giant corpo-rations and institutional investors, in other words: those who control capital. Their power has been strengthened by the mobility of international capital and an increasingly in-

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tegrated world economy as a result of the internationaliza-tion of production and the spread of consumerism. It also means that this power is stateless--it is structurally global-ized.

In a nutshell, I agree that we can contest the argument that says neoliberalism is merely a particular ideology that is devoted to the market. More than that, it is a political agenda and project that has been institutionalized world-wide within the power structure of capital. Besides, it evolves subsequently over time to the evolution of the world political economy. Still, this process is not completely de-veloped externally, as neoliberal reform is integrated into the internal condition of the country and even the social forces inside.

For example, Asian economic crises should have strengthened neoliberal reform agenda and many commen-tators expected a convergence of development models to replace Asian crony capitalism. Years after that, it appears that the crisis did not lead to convergence driven by neolib-eral ideas, practices and institutions in South East Asia. However, the process has also been highly contested be-cause of the contradictory, ambiguous, and sometimes sur-prising outcomes of the diversity of national experience of each state (Robison and Hewison 2005).

It shows that various domestic political alliances were assembled behind the neoliberal agenda. All reform efforts depend on the outcomes of the struggles over internal eco-nomic and political power, mediated by domestic interests of states and elites (Robison and Hewison 2005:194). There-fore, the issue is no longer how superpower relation has planted its neoliberal ideology inside one state, but how the process of a capitalist regime of accumulation together with internal social forces crafts neoliberal hegemonic order over time.

2.3 Methodology and MethodsAs neoliberalism has been interpreted and practiced in many different ways, one way to elaborate on it can be based on the country’s experience. Thus, this research re-lies on qualitative research to examine and link theoretical frameworks of neoliberalism to historical data of how neo-liberalism has been transformed in Indonesia.

From what has been illustrated by the theoretical frame-work above, this paper began with examining the change and continuity of the Washington Consensus to post-Wash-ington Consensus. It analyses the transformation of policies

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from the former to the latter, but the more important thing is the critique of it. The paper gave extra weight on what happened beyond the shifting of neoliberal policy itself – the similar fundamental concept that serves as a basis for both as a political agenda made in Washington. The same market orthodoxy and unchallenged power structure bey-ond the shifting of neoliberal policies support the argument that neoliberalism is broader than only the policy agenda.

Therefore, the paper explained the theoretical underpin-ning of neoliberalism, of which it chose three different con-cepts from Gamble, Harvey, and Gill, amongst various aca-demic literatures on neoliberalism. Each of them has a crit-ical point, to compare or complement one another. It star-ted with the basic dichotomy of laissez faire and social strand neoliberalism by Gamble; criticizes it using Harvey’s broad explanation on how it becomes a hegemonic dis-course through its double definition, as a school of thought and a policy agenda; and finally complements it with a dis-ciplinary neoliberalism by Gill to describe the social forces behind the political agenda of the market which is strengthened by the historical events that happened over time.

These discussions built the ground for the change and continuity arguments to describe the neoliberal trajectory, which later will be identified from the historical experience of Indonesia. To analyze the process, this research will fo-cus on the institutional change from regime to regime, in-cluding the battle between the actors within and the ex-ternal neoliberal pressure. On this basis, the continuity and change arguments kick in as two major readings of neolib-eralism in Indonesia. Then, this paper will continue to chal-lenge these findings, that the neoliberal trajectory in In-donesia from authoritarian to democratic regime is neither merely a change, nor it is a continuity alone. It will be ana-lyzed to the extent of neo-evolutionary theory which argues on the subject of the dialectical of change and continuity.

In order to do that, this research draws upon the histor-ical data and literature review, mostly on secondary literat-ures and to a lesser extent primary literatures. They are comprised of a variety of academic literatures, historical fact and events, news and selected quotes from govern-ment, economists, scholars, political elites about neoliberal-ism in Indonesia.

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Chapter 3 The Neoliberal Trajectory in Indonesia

The previous chapter has clearly illustrated that we cannot identify a fixed meaning of neoliberalism. There is no single definition that fits for all conditions. It is not a completely dominant school of thought or an ideology since it evolves over time and can be conducted differently in any countries, including in any regimes whether it is democracy or author-itarian. It is also more than merely a political agenda or project, which we can observe through the shifting of the Washington Consensus to post-Washington Consensus where contrasting policies bow under the same principles: market and capital. Therefore, to understand more about neoliberalism as well as its ownership in one country, this chapter will analyze Indonesia’s neoliberal trajectory.

It is argued that neoliberalism in Indonesia is not a big bang event, but a gradual and subtle process that historic-ally formed its trajectory. Having said that, this chapter will trace back what happened in 1965, the political and eco-nomic upheaval that led to the birth of Soeharto’s New Or-der regime, and the demise of it in the Asian crisis.

3.1 The Historical Overview of Indonesia’s Political Economy: A Market Oligarchy State 1959 to 1965 periods incorporated two ironic political con-ditions of Indonesia: its significant influence in world polit-ics, in contrast to chaotic and unstable internal politics. It began when Sukarno set the Guided Democracy and Guided Economy regime in 1959, declaring the end of the liberal democratic ‘experiment’ (Chalmers and Hadiz 1997: 13). Consequently, he placed himself as the Great Leader who led the country based on nationalism, autarchy and a Third Worldian foreign policy agenda which were anti-American and anti-capitalism. During the few years before his fall – with the support of PKI – Soekarno developed Indonesia’s relationship with China, quit international bodies such as the IMF and World Bank, and cursed the foreign aid with his famous line to Washington, “Go to hell with your foreign aid.” Under the Guided Economy, Soekarno popularized the slogan Berdikari, meaning “Standing on our own two feet,”

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which banned foreign capital and depended more on import substitution by state corporations.

Soekarno tried to build ‘socialism a la Indonesia’, which was little different from that of Nehru, Nkrumah, Nasser and other Afro-Asian leaders of the time. It condemned cap-italism and imperialism, it distrusted market forces which needed to be corrected or replaced by national planning and direct government controls, it preferred state to private ownership of business enterprises, and it professed egalit-arian concern for the welfare of the masses. As a side-ef-fect, the government’s capacity to tax gradually disinteg-rated and inflation turned into hyperinflation, as ever-chan-ging and multiplying regulations superimposed new direct controls on unenforceable older ones, as the output of na-tionalized estates and industrial plants declined and smug-gling further dissipated the country’s dwindling foreign ex-change earnings (Arndt 1975:85).

Soekarno’s revolutionary socialism belief radically in-spired him to oppose Western economic ideology and to only favor Marxist economics. His regime burned bridges with the West, through expulsion of all Dutch nationals in 1957 and takeovers of British and American businesses in 1963 and 1965. No serious attention was paid to the main-tenance or improvement of the economic infrastructure, or to developing new areas of economic activity. The president himself repeatedly stated that the laws of economics did not apply to Indonesia's revolutionary conditions (Liddle 1991:407). During this time, Soekarno’s tendency to focus on politics that often sacrificed the economy has been heav-ily criticized by political and intellectual activists. The 1959-1965 period has now been entered in the official version of Indonesian history as a time of political chaos and economic collapse (Chalmers and Hadiz 1997:14).

Bruce Glassburner, one of the U.S professors who taught In FEUI and conducted research there on Indonesia, said that Soekarno’s extreme stance as an anti-economist had caused his Indonesian academic colleagues to rename their courses, or design new courses, to give the impression of a balance of ideology.

I was present in 1958 on the occasion of the President's 'I hate economists' address to the student body, in which he as-serted that we were an under-educated profession, capable only of 'quoting Schumpeter and Keynes' and ignorant of the rich literature of Marxism (Glassburner 1991:51).Not only Soekarno, but the leftist ideology has driven

the country in the last periods of the Old Order. In October 1964, Dr. Subandrio, First Deputy Prime Minister, at a con-

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ference of university economists called by him, told Dr. Emil Salim, one of the FEUI economists: ‘The fact that you regard economic problems as important shows how your mind has been corrupted by Western liberalism’ (Arndt 1975:85).

This ideology turned in the opposite direction once Soe-harto took over the government. At the time he established the New Order government, Indonesia’s economic condition was very grim with inflation soaring up to 600% and a sharp decline in production. To handle this, Soeharto, a mil-itary general, appointed young academic economists from Faculty of Economy University of Indonesia (FEUI) who mostly have an overseas degree in economics from Univer-sity of California Berkeley funded by scholarships from the Ford Foundation who later became known as the Berkeley Mafia.

From the bigger picture of the world’s political economy stage, the rise of Soeharto and the appointment of Western-educated technocrats brought a sense of relief to the West-ern non-communist governments, as the country’s key eco-nomic advisors then re-opened Indonesia to foreign and trade investment. Consequently, one significant change at that time was the openness of the country to foreign assist-ance. This is a stark contrast compared to the close and autarchic regime of Sukarno. Since the 1960s, the IMF and the World Bank consistently supported the Indonesia gov-ernment, joined by the government of Japan, the United States, and Western Europe. It made Indonesia the major recipient of foreign economic assistance in Southeast Asia for more than two decades. The reputation of Indonesian economists and the support of governmental and intergov-ernmental agencies helped to make the Indonesian eco-nomy highly attractive to the private international banks (Bresnan 1993:282). In other words, those factors boosted market confidence in Indonesia and reinforced the country to access what had been provided by market.

1966 is a milestone of regime change and economic de-velopment in Indonesia. Yet one thing to notice, internally, was that Indonesia’s New Order under Soeharto was very different compared to his predecessor, though both of them were authoritarian. Liddle (1991) emphasized their differ-ence for the degree and type of competition: major, group-based, and polarized in the case of Soekarno's Guided Democracy; minor, patronage - or patrimonially - based, and collegial in Soeharto's New Order. Correspondingly, Bresnan (1993:281) also explains that Soeharto is the final arbiter in accepting or rejecting the academic technocrats’

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advice on economic policy. He usually accepted it in times of financial difficulty and ignored it when resources were plentiful. During the latter period, he preferred the advice of the nationalist group, which consisted of the army of-ficers and civilian engineers. Further explanation about the academic technocrats and their relation with the economic nationalist group will be described below.

3.2 Berkeley Mafia and the Rise and Fall of Technocracy It was left-wing activist David Ransom that coined the term Berkeley Mafia to call a group of young economists who studied abroad in the 1950-1960s. They later on held key economic ministerial positions in the Indonesia New Or-der’s bureaucracy. They orchestrated a main role in wiping out ‘revolutionary economy’ ala Soekarno by conducting a series of liberal economic policies. Ransom (1970) sees the rise of the economists as part of an American government plot to divert Indonesia from communism to capitalism.

In this case, Sulfikar (2008) argued, the fact that In-donesia became more open to “interventions” of Western countries was apparent, but Ransom’s allegation that the economists were stooges of the American government might not be completely true. Only a few of them went to Berkeley, and their training, as explained by the Ford Foundation, was part of the educational activities approved by President Soekarno to prepare teachers of economics, not to cultivate a new core of public officials.

Indeed, the appointment of the academic technocrats as the New Order’s economic advisors was rooted in the closer relation of military and academia at the dangerous periods of the Old Order. The Staff and Command School of the Army (Seskoad) invited the lecturers of three well-known universities in Indonesia to teach economics, philosophy, politics, and law, beside the 50% military courses, to the senior army officers, including Soeharto (Sadli 1993). This institutional relationship was vital for the rise of the techno-crats within their appointment of the future economic team as the military had become a strong force within the gov-ernment, who then overthrew the Old Order. Later on, un-der the Soeharto regime, the military played a double role, both in state defense and in governance.

Back to Ransom’s argument, he emphasizes that the U.S has planted its affluence since 1951 through educational as-sistance initiated by the Ford Foundation and Rockefeller Foundation. They came at the right time and sent American

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professors to supplant the Dutch professors in Indonesian universities who were forced to leave due to political con-flict between Indonesia and The Netherlands. “You can’t have a modernizing country without modernizing elite,” ex-plains the deputy vice president of Ford’s international divi-sion, Frank Sutton (Ransom 1970).

Ford launched its program with the support of some U.S. universities such as Massachusetts Institute of Techno-logy (MIT), Cornell University, and University of California Berkeley, not only providing lecturers to Indonesia but also giving scholarships for the potential Indonesian students to study in those top America’s universities. Ransom emphas-ized their role:

MIT and Cornell made contacts, collected data, built up ex-pertise. It was left to Berkeley actually to train most of the key Indonesians who would seize government power to put their pro-American lessons into practice This happened in 1966, as particularly in March, Soe-

harto took over the formal power from Soekarno and be-came Acting President, with the help of the old Sumatran politician Adam Malik to handle foreign affairs and the Sul-tan of Jogjakarta to hold responsibility over economic af-fairs. In April, the Sultan announced the new economic pro-gram in his famous speech which was indeed written by Widjojo and Sadli, two of the leading FEUI economists. The Sultan expressed mostly the measures to revive the eco-nomy and rebuild infrastructure. But, we can also detect the first whiff of the evolving ideology of developmentalism in his speech, when he said that the private sector would play a greater role in shaping Indonesia’s economic future (Chalmers and Hadiz 1997:41).

Besides their effort to convince the public of the need of economic reform, the technocrats also worked out the sub-sequent details of the Sultan’s program (Bresnan 1993). The Indonesian technocrats were not purely neoliberal here, which can be seen in the statement on this proposal rejecting both free fight liberalism that led only to exploita-tion, and “etatism” which killed all initiative outside the state sector.

However, the technocrats had not met Soeharto and won his approval as yet. This only happened in August, at an army seminar in Bandung, when a consensus was reached to support these proposals. Soeharto asked one of the students who just returned from Berkeley and later be-came a leader of the technocrats, Prof. Widjojo Nitisastro, to form a team of economic advisors (Liddle, 1991). Led by Widjojo, the Team of Experts for Economic and Financial

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consisted of 5 FEUI economists that would set the corner-stone of the new Indonesian economy. All had United States graduate degrees; in particular, four of them earned eco-nomics degrees from Berkeley.

They created the New Economic Policies announced on October 3 1966 that marked the neoliberal phase in the country. It was first outlined at a conference of representat-ives of the Indonesian government and its major noncom-munist creditors5 in Tokyo on September 19th.

On October 3rd, Soeharto announced a sweeping pro-gram of economic policy reforms which aimed to liberalize the economy, balance the budget, begin to get inflation un-der control, and pave the way for foreign aid (Bresnan 1993:64). From the time being, foreign aid was not con-sidered a burden, but as an opportunity to create develop-ment. This orthodoxy of stabilization programs together with liberalization of the economy became the core policies in the late 1960s, the years that were dominated by the eco-nomist technocrats. In fact, they succeeded in curbing infla-tion and rehabilitating the economy along with the inflow of foreign aid by 1968.

More than that, the technocrats simultaneously edu-cated General Soeharto in their science and initiated a "campaign of public education in economic affairs through a barrage of newspapers and magazine articles, public speeches and interviews." Soeharto, converted to their views and became "so influenced by what he has come to believe is the right economic policy" that his dedication to economic development became an "obsession" (Macdougall 1976:1167). Soeharto, whose charisma as a leader was less than his predecessor, began to focus on improving the eco-nomy with the advice of the technocrats.

Still, the sole influence of the technocrats on the eco-nomy only happened in the early years of the New Order. In the following years, under different circumstances and events in Indonesia’s economic history, the technocrats had to struggle, deal, bargain, and often lose their power in policy making to the nationalists and the patrimonialists in the government. They also had to deal with the corporatists and businessmen outside the government, mostly of Chinese descent and those from the family of Soeharto. It was not in their hands to decide the policy in the end, but in 5 The United States, Japan, Britain, France, West Germany, Italy, and The Netherlands. The Intenational Monetary Fund (IMF) and Australia also were represented, while Canada, New Zealand, and Switzerland sent observers. Indonesia’s largest single cred-itor at that time, The Soviet Union, was not invited.

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Soeharto’s. Like a puppet master, Soeharto juggled the roles of the groups to best suit his interests and to accom-modate his cronies. In addition to that, Liddle (1991) tried to capture what Soeharto wanted from these groups:

This is the way he seems to want it: the economists are the producers of wealth, the patrimonialists are the distributors of a large portion of it for political purposes, and the national-ists are the embodiment of his dream for more rapid progress toward an industrialized, internationally powerful Indonesia.In the political system, the change was marked with the

end of socialism in tandem with forbidden communism. Soe-harto’s New Order gained support from abroad, especially from foreign governments such as the U.S, Japan, and those of Western Europe, as well as the international financial in-stitutions like the IMF, World Bank, and the ADB. The coun-try’s relation with these counterparts in the initial years of the regime was established under the guidance of the tech-nocrats, using the link they had from their previous experi-ence as western trained technocrats.

There were five of the first generation technocrats who emerged as key members of Soeharto’s economic team and the founding fathers of the Indonesia technocracy. Who were they exactly? Shiraishi (2006) summarizes their edu-cation and career as follows:

Widjojo Nitisastro (UI; Ph.D., University of Califor-nia, Berkeley) joined Suharto’s advisory team in 1966 as a member of the National Economic Stabi-lization Board. He was appointed Chairman of BAPPENAS in 1967 and served in that position un-til 1983, while also serving as Coordinating Minis-ter for Economy, Trade, and Industry (Menko) from 1973 to 1983. He was appointed as advisor to the National Development Planning Agency or BAPPENAS (1983-1998) and presidential eco-nomic advisor (1993-1998), while working as pro-fessor of economics at UI from 1964 to 1993.

Ali Wardhana (UI; Ph.D., University of California, Berkeley), was professor of economics at UI. From 1966 to 1968, he was a member of the Economic Advisory Team of the President, served as Minis-ter of Finance from 1973 to 1983, and replaced Widjojo as Menko from 1983 to 1988.

Emil Salim (UI; Ph.D., University of California, Berkeley) served as deputy chief of BAPPENAS (1967-1971), State Minister for State Apparatus (1971-73), Minister of Transportation, Communi-cation and Tourism (1973-1978), State Minister

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for Development Supervision and Environment (1978-1983) and Minister of State for Population and Environment (1983-1993).

Subroto (UI; Ph.D., University of Indonesia) served as Director General of Research and Development at the Department of Trade, Minister of Man-power, Resettlement and Cooperatives, and finally Minister of Mining and Energy (1983-1988) before became Secretary General of the Organization of Petroleum-Exporting Countries, OPEC, in 1988.

Mohammad Sadli (UI; Ph.D., University of Indone-sia) studied at the MIT and the University of Cali-fornia, Berkeley, and served as Minister of Man-power (1971-1973) and Minister of Mining and En-ergy (1973-1978).

Although they were busy as government officials, their work and relation in the academic field at UI did not stop. Thus, UI along with UGM served as a camp for training and grooming the technocrats who continued the path of the original five (Shiraishi 2006).

Subsequently, the path was followed by the second-gen-eration academic technocrats. They also controlled BAP-PENAS, the Ministry of Finance, the Ministry of Trade, the Bank of Indonesia, as well as the Menko. These technocrats adhered to the doctrine of free trade based on the market economy, and advocated limiting state intervention in the market to a minimum and guaranteeing as much as possible the free economic activities of the private sector. They also held to the notion of “comparative advantage” of a country for economic development.

Still, they are not alone in the government; there is the opposing school of thought – mainly represented by engin-eers, many of whom were trained at the Bandung Institute of Technology (ITB) – who emerged in the late1970s. They believed in industrial policy and upheld state-led economic nationalism, arguing that the state should actively inter-vene to promote long-term growth of domestic industries, if necessary shielding these domestic industries from outside competition (Shiraishi 2006:16).

Both groups oscillated in their political economy strate-gies under Soeharto as the leader. Shiraishi (2006) sums up that when the economy was booming, economic nationalism manifested itself in the form of large-scale capital-intensive state projects, which often turned out to be wasteful and served to increase Indonesia’s external debt. When the economy experienced a downturn, those projects were

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shelved, the exchange rate was devalued, and deregulations were introduced to integrate the Indonesian economy more deeply into the global market. The pendulum swung be-tween these actors during the four periods in Indonesia’s New Order political economic history.

It is believed that the Berkeley Mafia technocrats with their neoliberal policies exist to present, overshadowing the changing of the regimes. This term has been used to label current liberal economists in the Indonesia government, es-pecially in the democratic era after the Asian crisis. Simul-taneously, the term neoliberalism has turned negatively as the common enemy for most Indonesians.

In Susilo Bambang Yudhoyono’s democratic governance, the term was revived not only for the policies he has done, but also has been used to label some technocrats in the cab-inet. The anti-neoliberalists attached this stigma to neolib-eral technocrats, especially to the Vice President, the Fin-ance Minister, and the Trade Minister.

Similar to their predecessors, those so-labeled neolib-eral technocrats do not have affiliation to any single polit-ical party, nor the electoral experience. They were re-cruited to hold their posts based upon their qualifications, their claim to knowledge, expertise, and experiences. Yet they refused the allegation of neoliberal agents by the op-position to them, arguing that what they do is to decide the policy according to the best practice as suits the country’s economic condition. They also bring their rationality into their vision of clean government. “It’s nonsense to be both a liberal economy and people based economy without effect-ive and clean government. If you are a liberal devotee, for example, in order to invite foreign investment, you need an arbiter which is a clean and effective government,” argued the Finance Minister Sri Mulyani.

Even though the continuity of neoliberalism is still alive in the economist technocrats today, the technocrats were never insulated from predatory raiders. They have not suc-ceeded in completely bringing out the neoliberal reform agenda. In Soeharto’s regime they had to obey Soeharto’s predatory capitalism and repressive authorianism, while in Yudhoyono’s term they have to struggle with diverse polit-ical parties lobbies and interests.

3.3 The Asian Crisis, Indonesia, and the IMF From the late 1980s to the early 1990s everything appeared very bright. Indonesia, together with other Asian countries had become an East Asian Miracle, with its steady fast

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growth and massive investments. Together with Japan, the region accounted for a quarter of world output, half of world growth, and almost two thirds of world fixed capital investment. In addition, Asia was the most export-depend-ent country, accompanied with its developmental state form that took place usually under authoritarian or dictatorial leadership.

In contrast, the other side of the western hemisphere was being eclipsed. The United States was a diminished gi-ant and the biggest debtor nation who depended on a con-tinually depreciating dollar to sell its exports, and on Asian savings to fund its deficits, constrained militarily by the “Vi-etnam syndrome” and unable to sustain political coalitions of support in the United Nations and other multilateral or-ganizations. Latin America after 1982 hardly counted ex-cept as a place from which to collect debts. Europe ap-peared introspective, cautioned by low growth and high un-employment (Wade 2000:86). Japan, China, Korea and the small tigers of South East Asia appeared to be the world’s emerging power, competing with the established U.S. and Europe.

It was a shock to the world when the region collapsed, hit by a sudden and sharp reversal of private capital flow started in mid 1997. Net private inflows of about $93 billion in 1996 to Korea, Thailand, Malaysia, Indonesia, and the Philippines became net outflows of about $12 billion in 1997, the $105 billion turnaround amounting to 11% of combined GDP. The shock of the unanticipated crisis was not only because it happened under such successful stories but also for its causes which were not the usual ones which happen in developing countries: bad fundamentals, mean-ing fiscal deficit, trade deficits, and inflation. Instead, it was a current account upheaval.

The official-academic consensus blamed the East Asian model and the improper home-grown institutional factor (Wade 2000; Gill 1999). They focused on identifying the political causes, simply as government failure or as govern-ment that consisted of crony capitalism, lack of supervision and weak regulations that structurally caused too much overseas borrowing and bad investments as indicated by the huge amounts of bad debt in East Asian countries.

This theory implies that an East Asian government should repair its flawed model – to discipline the corporate and government institutions. The international capital mar-kets and financial structure had no more than a secondary role in this. Therefore, the cure is to change the system, to discipline it and to open it up and make it more transpar-

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ent. According to Michel Camdessus (1999), “A lack of transparency has been found at the origin of the recurring crises in the emerging markets, and it has been a perni-cious feature of the ‘crony capitalism’ that has plagued most of the crisis countries and many more besides.”

In Indonesia’s case, most critics blamed the corrupt gov-ernment and Soeharto’s family cronyism. Therefore, when the country came to the IMF, what it got was the same re-cipe: the structural transformation of Indonesian capitalism in exchange for its US$41.5 billion rescue package. For the IMF, this crisis was a blessing in disguise to get rid of the distortions on neoliberal reform in the country (Robison and Hadiz 2004).

The program aimed to restore market confidence by (1) maintaining already prudent macro-economic policies through a mild increase in the targeted fiscal surplus com-bined with a limit on base money expansion; (2) addressing fundamental weaknesses in the financial sector, including the closure of 16 banks (along with a partial deposit guar-antee) as a prior action; and (3) undertaking structural re-forms that would enhance economic efficiency and trans-parency.

For the country, the remedy cost too much. It later triggered economic and social catastrophes; mass riots, eth-nic conflicts, and economic downturn. Unable to bear this, the Soeharto government fell and Indonesia entered the new phase of its political economic story: a path to demo-cracy.

Altogether, what happened after 1965 indicates that the neoliberal trajectory in Indonesia constitutes not only exo-genous neoliberal ideology and projects, but involved the tension and contestation from the local actors. Meanwhile, after 1998, the severe cost of crisis that pushed Indonesia to follow IMF programs signalled that neoliberal reform had started. However, does it successfully deliver the change it aimed at? Or is it still on the same path of its pre-decessor regime? The following Chapter 4 will elaborate on this complex debate.

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Chapter 4 The Change and the Continuity of Indonesia Neoliberalism

Two major debates have emerged, challenging each other, in arguing about the neoliberal trajectory from authorit-arian to democratic regime in Indonesia. The change argu-ment proposes that, neoliberal reform had been pursued and changed Indonesia’s political economy since the IMF came. Following that, SBY’s democratic administration has deepened the neoliberalization of the country, proved by some of its economic policies which are dominated by neo-liberal technocrats. By contrast, the continuity argument considers neolberalism from Soeharto to SBY administra-tion as holding the same structure and actors. The politico-business link is still deeply intact and haunted the economic policy making process.

4.1 The Change Argument1998 was the point of change reflected in the neoliberal re-form agenda that came along with the IMF’s programs. Al-though the old regime has been dismantled, the IMF pro-grams for Indonesia still continued. It began with the sign-ing of the first letter of intent (LOI) at the end of October 1997 and extended over a six year period until the termina-tion of the last one at the end of December 2003. No fewer than 16 LOIs were signed and the implementation of the re-form program took place under four different presidents.

The programs struck at key politico–business empires at the heart of the Soeharto regime, requiring the cancellation of large industrial projects and trading cartels. Perhaps the two pivotal IMF demands were those relating to the recapit-alisation of Indonesia’s banks and the decentralisation of administrative authority. They most clearly implied not only the political and economic demise of those families and their associates who had presided over the former regime, but also a deeper structural reorganisation of economic and political power (Hadiz and Robison 2005).

Under these intense programs and close surveillance by IMF, many neo-liberal observers expected the enforced re-structuring of debt and the recapitalisation of banks to fi-nally destroy the now-bankrupted politico–business con-glomerates, anticipating, in particular, that assets would be

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sold to international investors to resolve debt, transforming ownership and power (Robison and Hadiz 2004: 5–9). This neoliberal reform was also expected to break the develop-mental state model and to open Indonesia for global market access. At the same time, inside the country itself, the hope was arising more on political reform revolving around the fall of authoritarian Soeharto and the dawn of democracy, from a centralistic government to decentralization.

In order to do this, many institutional reforms have been performed during the transitional governments. Due to the political uncertainty within the five years transition period, there were three presidents; each had a short term period. The first one, B.J Habibie – Soeharto’s vice president, even though he was a nationalist-economist and one of the inner circle figures of the politico-business oligarchy, it was hard to resist being drawn into the vortex. There was little option but to agree to the agendas for policy changes and reform of the state apparatus contained in the letter of intent de-vised by the IMF and reformist technocrats (Robison and Hadiz 2004:188). He liberalized the central bank under the Central Bank Law of 1999. Another major initiative was the introduction of competition policy and the enactment of the Law regarding Prohibition of Monopoly Practices and Un-healthy Competition (Competition Law) in 1999 (Soesastro et.al. 2007).

Electoral democracy then resulted in the new president Abdurrahman Wahid, who was elected as a result of back-room negotiations of political party bosses in the People’s Consultative Assembly. Hence, the cabinet was dominated by party politicians: out of 35 cabinet ministers in his first cabinet, 22 were party politicians, while 6 were retired mil-itary officers, 4 were career bureaucrats; in the second cab-inet, 11 were party politicians, 4 were military officers, and 6 were career bureaucrats in the 26 member cabinet (Shiraishi 2006:34-35).

The period of the Wahid administration, lasted from Oc-tober 1999-July 2001, was remembered as a period in which cabinet ministers were constantly dismissed, replaced, or chose to resign. However, the outspoken president tried to institute a reform, one of which was to dismantle the State Secretariat and BAPPENAS. He saw these agencies as the two major civilian pillars of Soeharto’s new Order. Under Soeharto, BAPPENAS was in charge of national planning, drafting the development budget, coordinating with foreign governments and international organizations for interna-tional assistance, and monitoring functions in development project coordination and implementation. In other words, it

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was a super ministry, although the decision on national planning at that time was implemented by presidential de-cree (Shiraishi 2006).

This openly talked wish had not been realized because Wahid was impeached. Whereas, during his tenure, Indone-sia signed the third agreement with the IMF, which incor-porated a medium term agenda that had four components: a medium term macroeconomic framework, restructuring policies, rebuilding economic institutions, and improving natural resources management. Yet the implementation of the program was extremely slow due to lack of teamwork amongst his economic ministers and there was a growing rift between the government and the central bank. Wahid did start the centralization (regional autonomy) process, but it caused further complications which worsened the re-lationship between the government and parliament.

His vice president, Megawati - a daughter of Soekarno - was elevated to the presidency. Having learned from her predecessor’s experience, Megawati carefully chose her cabinet members, included representatives from the differ-ent political parties, but reserved some of the major eco-nomic posts for non-partisan professionals and her personal confidants6. Working well in restoring macroeconomic sta-bility, Megawati’s economic team also moved swiftly to mend the relations with the IMF (Soesastro 2007). Once more, the implementation was slow and difficult since the economic ministers failed to act as a cohesive team and co-ordination among them was weak. They disagreed and even often feuded with each other (Shiraishi 2006). Megawati confidant and Minister of National Planning Kwik Kian Gie, a nationalist, had no intention of being a team player and openly attacked BAPPENAS as a nest of corruption (Hill and Shiraishi 2007).

However, under Megawati’s administration, the law on government finance was enacted which in fact underpinned a self-restraining fiscal policy in 2003. This law also ruled the reorganization of the Ministry of Finance (MOF) to have more power while changing its relationship with BAP-PENAS. Previously, BAPPENAS worked with MOF for mak-ing Basics for Fiscal Policy and Macro Economic Frame-work, but this task now came under MOF. The powers of 6 Dorodjatun Kuntjara-Jakti, UI professor of political economy whom Suharto in his final days sent to the U.S. as ambassador, was appointed Menko; Boediono, an overseas trained technocrat as Minister of Finance; and Megawati’s outspoken confident, Kwik Kian Gie to be Minister of National Planning. Burhanuddin Abdullah replaced Syahril Sabirin in 2003 as BI Governor.

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BAPPENAS certainly were being limited as the responsibil-ity for making the entire budget also shifted to the MOF (Shiraishi 2006). This was a way to dissolve the superpower of BAPPENAS, in other words, to wrench the politico-busi-ness oligarchy chain as BAPPENAS was one of the central agencies of the New Order’s oligarchy.

To sum up, the transitional administrations have institu-tionally redefined the missions and powers of all important government economic agencies – BI, MOF and BAPPENAS (Shiraishi 2006). This change resembled how the state wanted to apply the neoliberal rationality in shaping and re-organizing the institutions to prevent the old-pattern of Soeharto’s market oligarchy from happening again. The transitional government led by President B.J Habibie, Pres-ident Abdurrachman Wahid, and President Megawati patched the way to alternative institutional and political designs.

Following this was the term of Susilo Bambang Yudhoy-ono (SBY) who was elected twice through a direct election. His first term started on the 20th of October 2004. His Democratic Party which only had small direct representa-tion in parliament formed a coalition with Golkar, the biggest old party in Indonesia. A prominent businessmen and politician from Golkar, Jusuf Kalla, became his vice president and later on dominated the reticent SBY in the decision making process.

Learning from that, in the second term, he picked Boedi-ono, a well-known economics professor to be his vice pres-ident. Despite this, he was seen as the leading architect of post-crisis macroeconomic stability under Megawati. Boediono was also being labeled as a neoliberal technocrat. SBY picked neoliberal technocrats to control changing sources of political uncertainty because his period was the newly established democratic era, after the authoritarian era and transition era. Therefore he accommodated the technocrats with their expertise as a balance of power to politicians and businessmen.

Unlike the three administrations before him, SBY had been granted a strong democratic mandate by a transpar-ent electoral process. Hence, since SBY’s first term in 2004-2009 until the second term in 2009 to now, the cabinet he made was a mix of technocrats, professionals, and politi-cians. The latest regime is made for accommodating polit-ical parties in the parliament. For this reason, the cabinet formed under the leadership of the popularly elected SBY has been dubbed a ‘return the favour’ cabinet, a cabinet of political mates, a rainbow cabinet and a power/cake sharing

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cabinet. The cause is the juggling by SBY of politicians, technocrats, and businessmen groups’ interests (Tanuwid-jaja 2009). Democracy runs in an ironic way: to accommod-ate every interest of different groups in the government. The other reason he appointed the neoliberal technocrats is to express his commitment to economic reform and regain investor confidence.

Despite this, during his initial period in office, SBY faced a daunting challenge in improving the economy. Mega-wati’s administration was able to restore macroeconomic stability, but microeconomic performance was dismal. In-vestors still held back as recorded foreign direct investment continued to be negative in the first half of 2004 .The initial 100 day programs of the SBY administration focused on three objectives: to improve the investment climate, to maintain macroeconomic stability, and to raise public wel-fare and eradicate poverty (Soesastro et. al. 2007). The ef-forts to improve the investment climate for example, are tendering infrastructure projects to the private sectors in the infrastructure summit, accelerating customs pro-cessing, simplifying licensing in commerce, etc. These in-vestment promotion programs and more privatization of state owned enterprises are some of the many policies that have shown the country’s shift to economic openness.

At the height of the sprawling anti-IMF and anti-neolib-eralism sentiment in the country, many believe that the SBY administration is very neoliberal and pro-market. They have several arguments. First, is that the economic technocrats in the SBY administration are part of the Berkeley Mafia from the previous regime. They are the people who are market oriented and have been brain-washed in U.S. educa-tion. The more extreme argument mentions the conspiracy within the Berkeley Mafia, the U.S government, and inter-national financial institutions, saying that the Berkeley Mafia is a comprador of the other two in opening up In-donesia economy to US and IFI’s imperial interests.

This led to the second argument that these economic technocrats applied their market fundamentalism idea into policies. They have rolled out the policies to deregulate, pri-vatize and liberalize the economy.

One of the proponents of the continuity argument is Kwik Kian Gie, ex-minister in Abdurrahman Wahid and Megawati’s presidency. Kwik, a nationalist politician and economist, named the Berkeley Mafia ‘Organization without Form’, who have controlled Indonesia’s economy in every presidency after Sukarno, except for the Wahid presidency. He said that many policies by the Berkeley Mafia have ex-

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ploited local economies for the sake of foreign investors. For example, he pointed at unfair oil and mineral contracts with foreign companies that have never been exposed to the owner of those rights, the Indonesian people (Kwik 2009). He also mentioned how the government sold govern-ment enterprises to foreign investors and made investment regulations which are in favor of them.

Another argument by the party politicians came from Amien Rais, a former Chief of People Consultative’s As-sembly. He said that until today, the national leaders only offered the continuity of the previous state. He thought that Indonesia still obeys the Washington Consensus, the IMF, the World Bank, and the WTO. He even bluntly said that In-donesia is still like an economic backyard where neoliberal Western countries throw away their rubbish. According to him, all economic activities, such as the policies in financial, banking, trade, plantation, and telecommunication have be-trayed the people’s interest and benefited foreign compan-ies’ interests (Rais 2008).

Not only politicians and academics have shaped neolib-eral discourse in Indonesia, but also the NGO and grass root movements, one of which is the national-scale environ-ment NGO named Walhi. It said the damage in Indonesia’s environment during 2009 has been contributed by the state that perceived neoliberalism. For them, the state is often serving as a puppet of foreign corporations that believe in neoliberalism. They saw the re-election of SBY as re-empha-sizing that neoliberal ideology obtained more power regard-ing the SBY policies that were pro market.

To conclude, the explained argument above illustrates that neoliberalism in the democratic regime is a change compared to one in the autocratic regime. The path toward neoliberal reform has been prepared since the transitional government, especially when they did institutional reforms to break the old regime’s politico-business intimate rela-tionship. Following this, the SBY administration has deliv-ered the country to neoliberal reform and the deepening of the country’s openness to the global market. It was con-firmed more clearly when SBY appointed the neoliberal technocrats to lead his economic team. The economic teams with their belief in markets as engines of development in turn will favor policies that are pro-market and investor.

4.2 The Continuity Argument On the other side, the continuity argument, which implies that the democratic regime holds the same neoliberal struc-

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ture as the authoritarian regime focuses on several points. First, the country has not changed into a neoliberal country even after the country slumped into crisis, became the longest patient of the IMF and had been forced to apply neoliberal programs, due to the remaining actors and ideo-logy. The economic nationalist group is still strong, whereas the other groups, such as the press and the civil society, gain more power with the end of authoritarianism and the rise of democracy.

It is certain that the neoliberal reform agenda has not completely taken over the economic policy. Even though democracy returned to the country, the transformation of Indonesia into a liberal market economy was ambiguous and uncertain. Again, unpredicted results of the regime change as the previous administration of Soekarno to Soe-harto happened again. Change did occur from shock which brought Indonesia from authoritarian to democracy. How-ever, it does not mean Indonesia came out of the crisis as a neoliberal government.

This can be seen, for example, as the reason why privat-isation progress had been very slow, even when Indonesia was still under reform commitment with the IMF in 2001 and 2002. Athukorala (2002:155) reported that one factor contributing to the slow progress was the government’s am-bivalent attitude to the whole idea of privatization. One group is pro-privatization as they see it as a way to have greater efficiency. The others, such as workers’ groups, were worried about the risk of job losses, while the eco-nomic nationalists were concerned over potential owner-ship transfer from domestic to foreign entrepreneurs. Of course, there are others who see SOEs as cash cows, con-trol of which offers the prospect of gain to private individu-als and political parties (Athukorala 2002:156).

This was also shown by the failure of the new Electricity Law (No.20/2002) during the Megawati administration. This new law together with the Oil and Gas Law (No.22/2001) encouraged the participation of private firms in both sec-tors that sent a strong signal for reform. However, the Elec-tricity Law was annulled by Constitutional Court in 2003, based on the complaint from the labour union of Perusa-haan Listrik Negara (PLN), the state company which has been the sole provider of electricity, and a number of NGOs (Soesastro et. al., 2007). In other words, electricity will still be the sole domain of the state. Furthermore, it implies that neoliberal reforms involving wide public or nationalistic in-terest will have a lot of challenges from various interests, and therefore will be difficult to achieve.

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Second, the old structure of politico-business relation is still intact. Deregulation had been selective and the state continued to play a critical role in shaping the market and controlling access to it. Predatory alliances of state and business oligarchies stamped their ascendancy in the eco-nomic and political spheres (Hadiz and Robison 2005:221).

In the early term of the SBY administration, it is quite surprising that his first cabinet was not full of professionals as some had predicted. The ascendancy of politico-business interest inside the government clearly can be seen through the second important actor who dominated the economic policy making--the vice president Jusuf Kalla. According to most accounts, Kalla was the second most important actor, after Yudhoyono himself, in the cabinet selection process, especially in the economic ministries (Tempo Magazine 25–31 October 2004). Under Kalla’s advice, a Suharto-era busi-nessman, Aburizal Bakrie, was named coordinating minister for the economy (Liddle and Mujani 2005:125). Kalla also successfully opposed the appointment of Sri Mulyani In-drawati as finance minister, on the grounds that she was too close to the IMF (Sadli, 2004b). At the time Kalla and Bakrie were both believed to want the state to play a more interventionist role to speed economic growth than had been the case under Megawati. Moreover, Shiraishi (2005), through the confidential interview with a Kalla adviser, states that there was a written contract signed by Yudhoy-ono assigning chief economic policy making responsibility to Kalla.

In the second term, Yudhoyono, who has been taught from Kalla’s domination on economic policy, chose an aca-demic technocrat, Boediono, as his vice president. Regard-less of this, the business-bureaucrats’ power is still strong. I will take the political case of Sri Mulyani versus Bakrie which led to Mulyani’s resignation as the finance minister in 2010 and who subsequently became the World Bank’s managing director.

Sri Mulyani, once an Indonesian delegation to be IMF senior executive, has a doctorate in economics from Univer-sity of Illinois and is a former economics professor at the University of Indonesia, who has been very famous as a strict, outspoken, and tough neoliberal technocrat. She never admitted that she is neoliberal though she has once argued that free market competition can be good for the people. “It will free the people from the sucking monopolies in the name of nationalism,” she told Kompas Daily, Indone-sia’s biggest newspaper, in the wave of the neoliberal de-bate during the election campaign.

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Aside from acting as an integrity icon for SBY's adminis-tration following her success in rooting out protracted graft at the tax and customs office, Mulyani is posing more as guarantor for positive business confidence both at home and overseas due to her ability in deploying a sound fiscal management policy (The Jakarta Post, 22 October 2009).

Yet her opponents said that she is a neoliberal agent due to her close tie with the IMF and other international financial institution. They also pointed out the liberal policies she enacted, such as the bubbling of Indonesia’s foreign debt, more state enterprise privatization, and some liberalization in the capital market. Besides, she is a mem-ber of the Berkeley Mafia, especially because she was U.S trained from University of Indonesia, the university that the first generation of Berkeley Mafia belonged to.

Her leaving triggered a major polemics in the media and politics of whether it is a political compromise that SBY should do to save his cabinet from the fall out of political in-terests. It is because at that time Mulyani and Boediono were under investigation by the parliament over the bailout decision regarding a small bank, Century Bank, when it was hit by the 2008 crisis. Both argued that they acted swiftly to avoid a ripple effect within the banking system. However, it was later revealed that the cost of the rescue operation was much higher—about 10 times—than initially estimated. Twelve months after the event, this provided the pretext for a virulent public campaign of personal abuse in the legis-lature and on the streets aimed at her (Hill 2010).

Mulyani insisted that she did the right thing to save the country’s economy and that the bailout is legal. Later on, in the interview with the Wall Street Journal, she said she be-lieved the probe was an attempt to discredit her by politi-cians that oppose her reform agenda, notably leaders of the Golkar Party, including Chairman Aburizal Bakrie, a billion-aire businessman and former cabinet member in President Susilo Bambang Yudhoyono's first-term administration. She added that tensions between her and Bakrie date to last year when she opposed the closure of Indonesia's stock ex-change amid a run on companies controlled by Bakrie. Bakrie, one of whose coal-mining firms accounted for a third of daily turnover on the bourse at the time, ordered the closure, she said. The finance ministry also imposed a travel ban last year on a number of coal-mining executives, including some from Bakrie's companies, after a dispute over the refusal of the companies to pay royalties on the sale of coal to the government (The Wall Street Journal 10 November 2009).

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In December of that year, Ms. Sri Mulyani also let it be known that, if President Yudhoyono acceded to Bakrie's de-mands on the exchange closure and taxes, she would resign. This would have been untenable, at the height of the financial crisis, and also given Ms. Sri Mulyani's widespread public popularity as a crusading anti-corruption reformer (Hill 2010).

It is also related to what happened back in 2006 in East Java, when a Bakrie controlled company using an unprotec-ted drill while probing for gas may have triggered a mud volcano that would swallow more than a dozen villages and render more than 15,000 people homeless. In 2010 the vol-cano continued to spew an estimated 100,000 tons of mud daily onto the surface. Bakrie’s reputation for probity was not enhanced when, reportedly against Mulyani’s advice, he insisted on denying responsibility for the disaster (Emmer-son 2010).

This case reflects that the continuity of politico-business interest in the state is still intact. Bakrie, as a prominent in-digenous businessman from Soeharto’s era that has made his comeback in Indonesian politics in SBY’s administration, remained a big player in economics policy making. This is supported by his party, Golkar, which is the strongest party in the parliament. The neoliberal reform and technocratic rationality will struggle to compete with this group, and it is difficult to win since they are not insulated from political appropriation. In other words, the predatory type of devel-opmental state from the New Order regime continues and very often dominates the economic policy making since they have greater influence in executive and legislative govern-ment.

The change and continuity arguments above actually confront each other. Focusing on only one argument can be challenged using the other opposite argument. To dig deeper into these contradictory arguments, the following chapter will analyze both arguments, their strength and weaknesses, and their criticisms towards each other, to de-cide what really describes the neoliberal trajectory in In-donesia.

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Chapter 5Analysing the Debate of Neoliberal Trajectory amidst the Regime Change

Being the central discussion of this research, this chapter will challenge the arguments of change and continuity that have been identified in the earlier chapter. The change ar-gument mainly focuses on how neoliberalism has happened in the country, triggered by the crisis and followed by the enforcement of IMF programs. This view expresses the tone that the exogenous factors overtake the endogenous ones. There are three central points of the change argument.

First, it is believed the IMF with its programs has put forth a pressure to liberalize and privatise the economy. This has been done by initially restructuring the institution of Indonesia’s political economy, via constitutional and legal ways. In the neoliberal view, the institutional reform was expected to edge away from the thick politico-business rela-tionship in the developmental state form, one that has been a scapegoat of the Asian crisis, including in Indonesia.

In this case, we also can notice the shifting of the Wash-ington Consensus to post-Washington Consensus, as it fo-cuses on institutional reform, although the thick orthodoxy of the market still lingers. Moreover, institutional reform was a part of ensuring and locking in neoliberal reform by the sets of regulatory, policy, surveillance or laws, as Gill (1995) mentioned in his ‘disciplinary neoliberalism’.

Second, the changing regime from authoritarian to democracy enhances this reform as well. This, quoting Springer (2009:271), is a ‘neoliberal democracy’, which is based on the argument that the best way to promote mar-kets – particularly those that would be open to ‘Western’ capital – is to develop democracy as this would, in theory, dislodge the politico-business oligarchies and what is viewed as patron favouritism advanced by an entrenched central authority. In Indonesia, democracy breaks up the powerful and almost limitless power of the state in the au-thoritarian regime. It removed centralization, and then shared power by deploying decentralization to the provin-cial governments. By doing this, there is not one single au-thority who will decide everything. It will minimize the rent-seeker activities due to the intimate business and politics relation in the center, while on the other hand it will open

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the opportunity to local government to decide some of their own policy.

The third point is that the neoliberal reform has been done in collaboration with Indonesia neoliberal technocrats who have neoliberal rationality as a result of neoliberal knowledge they obtained overseas. They supported IMF programs and influence the economic policy making to gradually herd the country into a globalized market-based economy.

To challenge the first assumption about external pres-sure, it might be argued that the institutional reform by the IMF has not been smoothly implemented but instead with tension and contestation from various actors under widely-ranging interests. Hence, the institutional reform has been carried out in an ambiguous way. The success or the failure of the programs depends also on the power negotiation between local actors, such as local governments, parlia-ment, and even the civil society and media. They played a part as they are given more freedom and room than if it were an authoritarian regime. This is the important change in the government structure that can challenge the continu-ity argument as well. Here, democracy and decentralisation play the predatory role to neoliberalism.

The example of this is the role of the legislature or DPR (people’s representatives). In the democratic regime, the parliament becomes a new social force in the country. Since the fall of Soeharto, the relationship between the legis-lature and the executive has changed significantly, from co-operation to confrontation. Previously, the parties and indi-vidual members must obey and re-elect Soeharto to obtain their presence. Now, the parliament has the power to criti-cize, interrogate, and even remove the president. Much of the new activism in the DPR was intended to increase its members’ share of the cake. In fact, they were not slow to seize upon the opportunity to extort funds from the bureau-cracy. They play their part in government policy such as in-troducing new laws and regulations; implementing budget-ary decisions such as the removal or reduction of subsidies and the divestment of state-owned enterprises; the appoint-ment of individuals to positions such as top military posts, ambassadorships and the governorship of the central bank (McLeod, 2005:373). With the intervention of DPR, some-times to make profit out of the policy making process, the neoliberal reform was quite difficult to obtain.

Thus, the change argument that says that neoliberal technocrats have prevailed upon the policy making is not completely tenable. Besides, this argument sees the role of

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technocrats as one structure that has been defined in the past and affected the current process. A critic to this ortho-dox argument is that it only saw the technocrats as a single social force which has the same preferences. They do not consider that the technocrats consist of different individuals who have their own beliefs and preferences. Some of them might be for the continuity argument, some others for the change argument. Furthermore, the technocrats themselves are also evolving over time. The technocrats in the demo-cratic regime, or in the transitional government, are not the same as the cohesive ones in Soeharto’s regime.

Having stated all of the above criticisms, I conclude that the neoliberal trajectory of the shifting regime from author-itarian to democracy in Indonesia is not merely a change. If it is not a change, the other possibility is continuity. But this argument also has its weaknesses that can be an-swered partly in the change argument.

The continuity argument believes that the old political structure or market oligarchy state during Soeharto’s era still stays in the government. If we analyse further, the DPR consists of many parties, and these parties also had their share in the SBY cabinet, in the form of their members sit-ting in the ministries. Meanwhile, among these parties’ members or ministers, many of them were coming from the New Order era. To add more, some of the politicians are also businessmen that sometimes can hijack the neoliberal policy for their own interests. In this case, the continuity ar-gument sets in.

All in all, it is true that some actors are still the same ac-tors from the old regime, the politico-business relationship remains strong, and the structure of the developmental state is still intact. But to only focus on the continuity is an oversimplification. The politico-business group cannot eas-ily dominate or decide the economic policies, whether in au-thoritarian or in democratic regime. It is a policy making process incorporated with vested interests of the social forces inside the government. One social force, either the technocrats or the politico-business group, do not have a blank check to decide economic policy, but instead have to bargain and deal with other social forces.

In this political process, there is in fact a change. Dur-ing the authoritarian regime, the other forces were the eco-nomic nationalists, Soeharto’s family, and Chinese busi-nessmen, combined with the will of Soeharto that became the final decision of policy making. Today, there are also many vested interests behind the economic policy making. Yet within this, local interests – constituted by regional not-

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ables, politico bureaucrats, and entrepreneurs – cultivated under the New Order’s vast system of patronage, may also currently be emerging as a more salient force due to erosion of the central state authority (Hadiz 2000:119). The actors inside and the patronage are not much changed, but only transformed into different form. Now, because there is no longer dictatorial power as it was in Soeharto’s reign, they have to converge themselves and appropriate amongst each other.

In addition to this, unlike the authoritarian era, the tech-nical expertise is no longer commanded by academic tech-nocrats, but is shared with technocratic bureaucrats and party politicians. As Shiraishi (2006:47) said, the lingua franca of economics can now be deployed either to support or to criticize the government’s economic policies by a more diverse group of political players that had been pos-sible during the New Order; this means that a range of per-spectives in economic thinking is now available for political appropriation.

In light of this analysis, this paper proposes the argu-ment that neither change nor continuity describes the transformation of neoliberalism from authoritarian to demo-cratic regime by themselves. Both are there and play a dia-lectical role during the transformation of autocratic regime to democratic regime. As a matter of fact, we should not compare each regime in a static comparison, because the structure is moving. There has been an incremental change, happening over time within each regime itself. Further-more, it is not one group of social forces, such as neoliberal technocrats who could control the economic policy from time to time. In reality, there was a competition among so-cial forces, as well as cooperation. A particular social group could win over another in a particular time period, but in another time it could lose as well. To give a clear illustra-tion of this, I will go back to the periods of New Order gov-ernment according to Hill (1999):

1. Rehabilitation and recovery, 1966 to 1970: the period when economist technocrats started to use orthodox monetary and fiscal policy to curb inflation, re-estab-lish ties with the international donor community, and to rehabilitate physical infrastructure. Indonesia’s major creditors formed the Inter-Governmental Group in Indonesia to restructure its debt and plan the re-sumption of aid and loans. The technocrats also cre-ated new foreign and domestic investment laws which are very liberal and foreign investor friendly with tax incentives and government guarantees.

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2. Rapid growth, 1971-1981: As a result of foreign in-vestment inflow from Japan and the U.S and the wind-fall of the rising oil price, real GDP increased at an annual average rate of 7.7%. It was also a period of economic turbulence (Hill, 1999:16). In 1972, rice prices surged followed by oil price in 1973, which caused inflationary pressure. But Soeharto survived this and was re-elected in 1973. As he appointed seven economists from Widjojo’s group to be his min-isters, this year was politically the winning year of the technocrats (Mallarangeng, 2002). Ironically, critics came from student activists and nationalist intellectu-als saying that the government was corrupt and under control of international capital, Japan in particular. This intellectual battle was heightened to its peak in 1974 by a big mass riot as well as the first mass protests in the New Order’s history called Malari. Malari became a reason for Soeharto to change his economic policy. He did not erase all previous liberal policies, but still, since then more and more central-istic policies were implemented to protect local in-dustry, subsidize particular groups, and its kind. The oil bonanza came at the right time to support the pro-liferate intervention of the state (Mallarangeng, 2002:237). The influence of the nationalist’s group in the government increased considerably during this period with three state agencies emerging as power-ful centers of official economic nationalism.

3. Adjustment to lower oil price, 1982-1986: failing oil prices, rising external indebtedness, and a sudden de-cline in economic growth in 1982 limited the interven-tionist policies by the state. The technocrats whose power was weakened in the previous period prepared to return. The World Bank also started to advise that the country needed a reform. In the mid 1980s, gov-ernment deregulated financial and trade regimes, re-laxed foreign investment restrictions, and opened a range of former state monopolies to private sector in-vestment. Other than that, the policy response was still ambivalent. Around the same time, a small coali-tion of liberal-minded officials, academics, and social commentators had coalesced for further deregulation ideas (Chalmers and Hadiz, 1997:96). Due to their high profile, they had great influence in forming pub-lic opinion via the national media. They were also sup-ported by international organizations such as the

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IMF, World Bank, and the IGGI (Chalmers and Hadiz, 1997:140).

4. Liberalization and recovery, 1987-1997: government continued fiscal austerity, effective exchange rate management, and liberalization in trade and industry. With more opportunity to do business and investment in the country on one hand and the increasing non-tariff barriers on the other hand, the politico-business oligarchy aroused significantly. Soeharto’s children and family emerged as the new tycoons who ran their business empire in a relationship with the Chinese-In-donesia business group. They received special treat-ment from the state, created cartels within various in-dustries, enjoyed rent-seeking activities, and secured access to global and domestic financial markets with largely unregulated commercial bank loans and equity (Robison and Hadiz, 2004).

During the economic turbulence, Soeharto depended on the academic technocrats to fix the situation and move to more market-friendly and liberal policies. However, in the good times, Soeharto favored the economic nationalist group with their protectionist policy. This changes a bit in the last period before crisis. During that period, the state oligarchy was very thick, with the rising of Chinese con-glomerates, military businesses, and Soeharto’s family busi-ness empire. They made a silent alliance to hijack the neo-liberal policies, involved in rent-seeking activities, and took benefit from the hole of the regulations and particular state intervention.

Following that, neoliberalism re-embarks after the Asian crisis. This is another turning point – a shock to shake the established structure or the political agreement among dominant social forces. Whereas, the democratic regime af-terwards is not only about the political negotiation between two groups - technocrats versus politico-business per se - but it is more than that; since there are many players have been involved as a result of democratization in the country.

Finally, this analysis has found that the dialectical view of change and continuity can be more useful to see how neoliberalism has been evolved from the autocratic govern-ment to the democratic government of Indonesia. One of the theories that can be used as an alternative to explain the dialectical argument is the neo-evolutionary theory.

This institutional and evolutionary economics theory is rooted on Generalized Darwinism which believes that the core evolutionary principles of variety, selection and inher-

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itance can be applied to both society and natural systems, even though the detailed mechanisms will be distinct (Hodgson, 2004). In other words, it incorporates change and continuity as two inherent processes.

To explain continuity in the so-called path dependency, Pierson (2000:264-265) explains that it is both historical be-cause it recognizes that political development must be un-derstood as a process that unfolds overtime, and institution-alist because it stresses many of the contemporary political implications of these temporal processes are embedded in institutions – whether formal rules, policy structures, or norms. Hence, the path dependency implies that change can only occur if it exhibits certain types of ‘continuity’ with the environment and past choices. It implies continuity be-cause once a decision has been made and institutionalized in the past, the procedure later will tend to follow that way.

Still, the argument of path dependency often is criti-cized as too deterministic. To develop this, Kerr (2002:354) argues that continuity can happen because it recognizes deep structures of dominant power relations that both con-strain and facilitate human agency. In other words, we have to examine what is beyond the power relation that could be a political agreement between the most powerful social powers, in regard to their interests.

This heterodox neo-evolutionary account will also ex-plain deeper about change. For example, Kerr (2002) ex-plains that political evolution can often be the result of the unintended consequences of political action, but it occurs within institutional, contextual, and discursive environ-ments which are the product of past struggles and ideas.

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Chapter 6Conclusion: To the Dialectical of Change and Continuity

This research on the neoliberal trajectory from an authori-tarian to a democratic regime in Indonesia confirms several findings. First, there are two major views that captured In-donesia neoliberalism evolution from authoritarian to democracy: a change and a continutiy argument. The for-mer posits that neoliberal reform has been happening in the democratic regime as a result of mainly exogenous factors. It is believed the IMF with its programs has put forth pres-sure to liberalize and privatize the economy. The Asian crisis, according to this account, was also the crisis of a market oligarchy state in Indonesia, which allowed the changing regime from authoritarian to democracy to en-hance this reform as well. In addition, the neoliberal reform has been done in collaboration with Indonesian neoliberal technocrats who have neoliberal rationality as a result of neoliberal knowledge they obtained overseas.

By contrast, the second account weighs on the continu-ity and the lock-in of Soeharto’s New Order structure in the SBY administration. Even today, most of the government actors are still the same actors from the old regime, the politico-business relationship remains strong, and the struc-ture of developmental state still intact.

Criticizing both views, I come to the second fact, that it is neither change alone, nor continuity alone that reflects the neoliberal process in Indonesia. To say neoliberal re-form has successfully pushed democratic regime into the deepening of neoliberalism, more than it was in the New Order, is a weak argument. It simply ignores the endoge-nous factors, for example the strong link of politico-busi-ness which is still intact. Unfortunately, this is the most popular discourse about Indonesia neoliberalism that has been deployed as political jargon through the media. By contrast, only criticizing the process as continuity is also an oversimplification of the complexity over neoliberal reform in Indonesia. Nevertheless, certain things do stay and were not touched by change. It is because the strong binding of hegemonic powers in the government i.e. the political agreement between actors.

Having said that, I believe it is not a complete exogen-ous factor that undermines the endogenous. It is not a neo-

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liberal ideology from outside that swept away nationalist economic ideology. Nor is it about the domination of neolib-eral technocrats over other actors in the economic policy making. In the same logic, emphasizing only the legacy of the developmental state, the prevailing politico-business group, and the hijacking of neoliberal policy is a bit naïve and does not weigh the influence of global political eco-nomy.

Therefore, I conclude that neoliberalism in Indonesia can be seen as a dialectical view of change and continuity. Note that the change and continuity argument also hap-pened in the process from Washington Consensus to Post-Washington Consensus, the heart of neoliberal principle evolution. This change and continuity of Washington and Post-Washington Consensus also affects the neoliberalism trajectory of Indonesia as an exogenous factor.

Regarding this complexity and the limitation of this re-search, my final finding of the dialectical change and conti-nuity could be elaborated in a further study. In the further research about Indonesian neoliberalism, I consider that one way to analyze it is by using the neo-evolutionary the-ory, as it perceives political evolution as the selection and adaptation of political strategies and ideas. It will look at neoliberalism as a duality process that allows continuity or a path dependency and change or contingency to intertwine between each other. Path dependency will point out how the legacy of Old Order still persists in the current govern-ment. However, to avoid determinism, we can go beyond that, by analyzing the hegemonic binding of political actors who have been locked into the structure. Meanwhile, con-tingency can explain how the change, happening from ex-ternal factors and shocks, is shaking off the structure.

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